GameStop stock soars as Keith Gill discloses 120K call options on GME
- Keith Gill is back to disclose huge position in GME shares.
- GameStop stock reaches above $40 in Monday premarket.
- GME stock closed on Friday at $23.14.
- US PCE report leaves market optimistic for lower inflation, more rate cuts.
GameStop (GME) stock soared 74% in Monday’s premarket after Keith Gill, aka Roaring Kitty, disclosed a large position in GameStop short-term, in-the-money call options. GME stock closed on Friday at $23.14 but is trading north of $40 at the time of writing.
Both the NASDAQ and S&P 500 futures are rising early Monday as traders consider a continuance with Friday’s mini-rally following the US Personal Consumption Expenditures (PCE) data.
"US equities staged a very late month-end comeback on Friday after trading lower much of the day as the personal spending data hinted at a weakening US consumer," wrote Deutsche Bank's Jim Reid in a client note. "Despite the weak personal spending data, the PCE inflation numbers helped raise the amount of rate cuts expected this year.”
GameStop stock news
News had percolated through various retail trading forums last week that an anonymous whale was buying a large position in GameStop stock. Then, on Sunday, Keith Gill let it be known that he was that whale.
Gill posted the following screenshot on the Reddit social media site’s r/Superstonk channel under his DeepFuckingValue username:
The image appears to show that Gill owns 5 million shares of GME, which were purchased at an average price of $21.274. At last Friday’s price, this would come to $115.7 million in value. Then he owns 120,000 call options worth about $65.7 million at last Friday’s price but much more at Monday’s market price.
If enough retail traders follow Gill into the trade, GME should be onto the second phase of the rally that climaxed back in May when shares rose to an intraday high of $64.83. The share price collapsed from there when GameStop management sold $933 million worth of new shares.
This second phase should last until June 21 at the least since that is when Gill’s options expire, all of which have a $20 strike price.
Gamestop FAQs
GameStop is a retailer of video games and gaming merchandise through its approximately 4,400 branded stores worldwide. More than 2,900 of these locations are in the United States. The company was founded in Dallas, Texas, in 1984 as Babbage’s but changed its name to GameStop in 1999. The company had revenue of $5.93 billion in 2022 but has been falling over the past decade as physical game purchases have been declining in favor of digital downloads directly from hardware providers like Sony’s Playstation, Microsoft’s XBox, Nintendo and the Steam platform. The company trades under the GME symbol on the New York Stock Exchange.
In January of 2021, retail stock traders that organized on Reddit’s r/WallStreetBets forum realized that GameStop’s short ratio exceeded its float through the use of naked shorts. This information circulated until a group of traders decided to buy up the small amount of shares that were available. This caused the price to jump 1,500% in a famous short squeeze that month when short-sellers were forced to repurchase shares to close their short positions at higher and higher prices. Traders like Keith Gill walked away with millions of dollars in profits, while hedge funds like Melvin Capital and White Square Capital would eventually shutter due to extreme losses on their short positions. Traders on the Reddit forum made memes to proselytize their bets on GameStop, which helped the long trade proliferate. Later many of these same traders would glom onto new “meme stocks” like AMC Entertainment and Bed, Bath & Beyond.
In its most recent quarter, Q1 2023, GameStop saw revenue decline 10% YoY to $1.237 billion, which is pretty much par for the course. Much of the reduction in sales is due to declining game and collectible revenue, while hardware and merchandise sales have actually been increasing. GameStop has been making the most of the situation by cutting back on labor costs (SG&A) to the tune of $100 million YoY. These cost-cutting measures led GameStop to cut its net loss YoY by two-thirds to about $50 million. With more than $1 billion in cash on its balance sheet, so its backers think it has enough runway to become profitable again. Out of 12 recent analyst marks, the vast majority gave GME stock a “Hold” rating, while four analysts gave it a “Buy” or “Strong Buy”.
Ryan Cohen, the founder and former CEO of Chewy.com, made a large investment in GameStop in December 2020, preceding the stock’s epic short squeeze. Cohen became one of the most high-profile investors in the meme stock and later became Executive Chairman of the company. His tenure has resulted in a number of high-profile changes to management. A number of executives left GameStop once Cohen arrived, and he is said to have used his perch to install new executives from Chewy and Amazon in key positions. Cohen owns approximately 12% of the company.
GameStop stock chart
GME 15-minute stock chart
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Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
